Although Oil and Gas UK was relatively isolated from EU regulations, British oil and gas contractors and companies are feeling the heat after the Brexit vote. The pace of oil field shutdowns in the UK North Sea has increased. This is because of the market slump coupled with an uncertain and volatile investment environment caused by Brexit.
According to Oil and Gas UK, the estimated amount that will be spent to decommission the oil rigs and fields in the North Sea until 2024 has increased to £16.9 billion. This ballpark figure is 16 per cent higher than the ten-year forecast the industry group had predicted in 2014, and the increase is primarily due to more sites shutting down.
The North Sea is one of the world’s most expensive regions to operate oil fields. With crude oil costing less than $50 a barrel, about 30 per cent of oil fields are operating at a loss in the region, according to consulting group Wood Mackenzie. The market slump is causing more oil and gas companies to plug oil wells located on the sea bed. However, this process started even before the UK voted to leave the EU.
Wood Mackenzie Analyst Fiona Legate stated that there will be an increase in the number of oil fields that will close in the near future, and this, in turn, has increased the decommissioning costs. Legate added that the political uncertainty in the country after the vote to leave the EU has made investment decisions even more complicated for oil and gas companies operating in the region.
Nearly a third of the oil and gas rigs in the North Sea are over 30 years old. This is well beyond the original lifespan of these platforms. When the oil was $100 a barrel, it justified making technological upgrades to keep these platforms running. However, with the oil slumping to under $50 a barrel, it is a difficult proposition to keep investing in these outdated oil platforms.